"You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension."

He goes on to say:

"This portfolio should be in safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds. Anything above that, you can invest in risky assets. That's your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn't do well, at least you're not pushing a shopping cart under an overpass."

Everyone's goals and for that matter risk tolerances are different. With the recent equity runups some might be approaching or even may have surpassed their goal.

For me having reached my goal, it's time to take some, not all, some of the chips off the table.

Not all of us agreed with Bill's concept, especially doing anything suddenly once a specific dollar number is reached for the first time.
I think a gradual approach is better, tweaking your target AA by one percent a year, for example. And rebalancing in 1% to 2% increments if you get outside your AA bands.
But others are certainly welcome to do as they please...

And so it appeared in about 9 of the last 10 trading days. Except that today we can see that they weren't!

That depends on just what the OP means.
If he's just rebalancing per plan, then yes, moving a small percentage should do the trick.
If he's selling half his equities to "lock in gains" or some such, then we'll convict him of blatant market timing...

He said he has just "made his number" and that has triggered a plan to change his asset allocation.

Calling that a good day to take some money off the table is an odd way to describe that but may be literally true.

It would be interesting to know exactly what change is involved here. One might suppose that it means selling anything and everything that might be in stocks now and holding only ". . . safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds . . ." This logically follows as having just made the number there is no "Anything above that, you can invest in risky assets."

I think that if this is the actual result of Mr. Bernstein's advice, that it would be a bizarre result, but it is what is literally indicated if we read the quote correctly -- or -- I don't understand the idea at all.

My IPS calls for rebalancing in presidential election years if a rebalance band has been traversed. A band was traversed but I let it ride believing that momentum would carry the market higher. It did. I'm now rebalancing and have realized that the FI portion of my portfolio approachs the 25x multiplier per Bill's article.

Momentum or not, it's time to back away from the casino table.

Per my IPS my asset allocation is 35/5/60 equity/REIT/bond with a small sc/sv tilt.

zed wrote:My IPS calls for rebalancing in presidential election years if a rebalance band has been traversed. A band was traversed but I let it ride believing that momentum would carry the market higher. It did. I'm now rebalancing and have realized that the FI portion of my portfolio approachs the 25x multiplier per Bill's article.

Momentum or not, it's time to back away from the casino table.

Per my IPS my asset allocation is 35/5/60 equity/REIT/bond with a small sc/sv tilt.

The 35% will continue to do the heavy lifting

That presidential election year thing, IPS or no IPS, is a bit odd, but good luck to you anyway.
We all need to give thought to what our AA will be down the road when we:
1) roughly achieve our "number"
2) terminate employment
I've achieved both 1) and 2) and have a target of 50% equities in my unannuitized assets. I've pondered reducing equities to 40% but then I wonder WHY? I'll wait till the next stock market downturn and maybe the answer will come to me then...

There's the core of it. Market timing - covered up by some "rebalancing" talk and creatively rationalized with some "what if I've reached my number" talk.

Why bother with rebalancing bands and discussion about hitting a reasonable number? Especially when the truth of it is you will ignore those factors and simply "take some off the table" after you have "let it ride". If one is going to market time - simply do it. Don't dress it up with boglehead like wording - and confuse the situation with "IPS", "rebalance" and other terminology that has nothing to do with market timing.

There's the core of it. Market timing - covered up by some "rebalancing" talk and creatively rationalized with some "what if I've reached my number" talk.

Why bother with rebalancing bands and discussion about hitting a reasonable number? Especially when the truth of it is you will ignore those factors and simply "take some off the table" after you have "let it ride". If one is going to market time - simply do it. Don't dress it up with boglehead like wording - and confuse the situation with "IPS", "rebalance" and other terminology that has nothing to do with market timing.

Maybe, maybe not.
He didn't give us all the numbers.
35% equities is/was his target, so maybe he got up to 40% with the market conditions? Depending on where his new contribs have been going? So now he sells 1/8 of his equities and gets back to target?
I rebalance in 1% steps when needed, but a 5% rebalance step isn't unheard of...

Leonard oh my what hostility in your tone. Perhaps too much time in front of the computer.

FWIW My rebalancing strategy comes from Jim Otar's research which suggested that primarily due to momentum, rebalancing more frequently than every four years was counterproductive. Also per his research picking a presidental election year was slightly more beneficial.

I could not discern from Jim's work what to do when the administration doesn't change, so I did nothing. Well, until now.

zed wrote:Leonard oh my what hostility in your tone. Perhaps too much time in front of the computer.

FWIW My rebalancing strategy comes from Jim Otar's research which suggested that primarily due to momentum, rebalancing more frequently than every four years was counterproductive. Also per his research picking a presidental election year was slightly more beneficial.

I could not discern from Jim's work what to do when the administration doesn't change, so I did nothing. Well, until now.

Call it market timing if it makes you feel better.

Not hostile. Your money. Knock yourself out.

But, why add the work of Boglehead terminology window dressing to a market timing strategy?

FWIW, Zed, I think the actions you're taking (predicated upon Bernstein's recommendations in the OP) make perfect sense.

I did some similar moving of assets to less risk once I felt I had achieved my desired "number". How anyone can quibble with how another forum member manages his or her own money is really beyond me. We're all in this Boglehead thing together but none of us are bound by any one particular methodology in achieving our ends. (Insert Taylor's "more than one road to Dublin" admonition here.)

Personally, now I can concentrate more fully on maintaining the allocations within the "risk portfolio" which is comprised of domestic and international equities along with some SCV for a modest tilt.

More power to you and to each his own.

“Tactics without strategy is the noise before defeat.” - Sun Tzu |
"Everybody has a plan until they get punched in the mouth." - Mike Tyson

dbr wrote:It would be interesting to know exactly what change is involved here. One might suppose that it means selling anything and everything that might be in stocks now and holding only ". . . safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds . . ." This logically follows as having just made the number there is no "Anything above that, you can invest in risky assets."

I think that if this is the actual result of Mr. Bernstein's advice, that it would be a bizarre result, but it is what is literally indicated if we read the quote correctly -- or -- I don't understand the idea at all.

If you go to the link, the quote is put in context as the answer to this question: So how should I be investing near and after retirement?

The following also clarifies the idea, I think:

And what about when I'm in the middle of my career?
That's the key phase. You need to start bailing out of risky assets as you get closer to achieving that liability-matching portfolio—when you can "win the game" without taking so much risk.

It is really quite simple....If you have a specific amount of money you need to have a safe retirement and the stock market has a big gain of course you should cash out if it meets your requirement.How can anyone reasonably say it is foolish because you are timing the market.You have achieved your investment goal.Boglehead or not it is foolish to risk your proven security because of some rigid philosophy that you never time the market.Say he does not sell and the market tanks 25 % in the next 2 weeks.He no longer has a secure retirement.It is idiotic to risk the security you have achieved.

hoops777 wrote:It is really quite simple....If you have a specific amount of money you need to have a safe retirement and the stock market has a big gain of course you should cash out if it meets your requirement.How can anyone reasonably say it is foolish because you are timing the market.You have achieved your investment goal.Boglehead or not it is foolish to risk your proven security because of some rigid philosophy that you never time the market.Say he does not sell and the market tanks 25 % in the next 2 weeks.He no longer has a secure retirement.It is idiotic to risk the security you have achieved.

But what he seemed to do was hit the number last year and decided to let it ride after that. It was idiotic to risk it by not rebalancing then just as much as it would be idiotic to do so now. So are you saying he was idiotic then?

Blues wrote:FWIW, Zed, I think the actions you're taking (predicated upon Bernstein's recommendations in the OP) make perfect sense.

I did some similar moving of assets to less risk once I felt I had achieved my desired "number". How anyone can quibble with how another forum member manages his or her own money is really beyond me. We're all in this Boglehead thing together but none of us are bound by any one particular methodology in achieving our ends. (Insert Taylor's "more than one road to Dublin" admonition here.)

I wonder why you did not conclude just when you reached your number that you should have moved everything you had at that point to non-risky assets? In other words do you now have risky assets because you continued to save after that, or did you save beyond your number and then de-risk the portfolio down to Bernstein's formula?

Blues wrote:FWIW, Zed, I think the actions you're taking (predicated upon Bernstein's recommendations in the OP) make perfect sense.

I did some similar moving of assets to less risk once I felt I had achieved my desired "number". How anyone can quibble with how another forum member manages his or her own money is really beyond me. We're all in this Boglehead thing together but none of us are bound by any one particular methodology in achieving our ends. (Insert Taylor's "more than one road to Dublin" admonition here.)

I wonder why you did not conclude just when you reached your number that you should have moved everything you had at that point to non-risky assets? In other words do you now have risky assets because you continued to save after that, or did you save beyond your number and then de-risk the portfolio down to Bernstein's formula?

My number is a somewhat hazy target in that my pension covers most all of our routine expenses barring new cars, lavish vacations, big ticket items and the like. And though the pension receives a COLA, the government is continually trying to find ways to change what it's chained to.

So, what I did was to segregate an amount of money to short-term bonds, cd's, money market, I-Bonds and cash that would represent the difference (roughly) between my former salary and what my pension pays me annually x 25. This represents approximately 70% of my portfolio. I am also able to put aside some money each month toward savings and rebalancing.

The other 30% (or so) remains invested in the domestic and international equity markets in an effort to help offset the withering effect of (future) inflation on the money already in fixed income, as well as to hopefully provide for unforeseen expenses down the road. (This dovetails with Bernstein's discussion of a "risk portfolio" beyond the "liability matching portfolio".)

I had already been in the process of making the portfolio more conservative (reducing exposure to riskier investments) when I became aware of Bill's recent thoughts on the subject. They seemed to integrate seamlessly with what I had in mind and so I incorporated his recommendations rather quickly as I was already there, so to speak.

If I knew of a safer method of accomplishing all this without being in the market, I'm sure I'd entertain the idea. However, I'm not enamored of insurance companies so a SPIA is not something I am interested in at this point in time, not the least because I am 60 and my wife a few years younger.

I hope that helps provide the perspective you were seeking on my own reasons.

“Tactics without strategy is the noise before defeat.” - Sun Tzu |
"Everybody has a plan until they get punched in the mouth." - Mike Tyson

Blues wrote:So, what I did was to segregate an amount of money to short-term bonds, cd's, money market, I-Bonds and cash that would represent the difference (roughly) between my former salary and what my pension pays me annually x 25.

I've done something similar, only based on spending not income. When I am not working, I will not be saving for retirement, paying payroll taxes, or paying pension contributions. These three things alone account for about 40% of current income.

However, I'm not enamored of insurance companies so a SPIA is not something I am interested in at this point in time...

Another reason to not go that route is that you already have a good pension. I think an annuity potentially makes sense for those without a pension, as it is essentially a way to create one.

jeffyscott wrote:I think an annuity potentially makes sense for those without a pension, as it is essentially a way to create one.

In my case my pension + SS cover all of my normal expenses, and then some, but the pension has no COLA. I am contemplating that someday I may need to buy an SPIA, probably inflation-indexed, to make up for the damage my pension has taken from inflation. Still thinking on that.

One thing that might "save me" is that a big part of my expenses is my mortgage payment and that is not subject to inflation.

Listen very carefully. I shall say this only once. (There! I've said it.)

Walking away from the table when you've made as much as you need to make isn't market timing. It's prudent behavior.

The whole point of avoiding market timing is that the market goes up, down, and sideways in unpredictable ways. That means money in stocks could go poof at any time and stay gone for long enough to ruin your retirement. So when you look one day and see that you have all you need, it could be argued that it is plain old greed that tells you to keep risking it.

25 times what you need after pension and social security is plenty. If inflation ramps up there will be fixed income vehicles that can preserve your spending power.

I quoted this in another thread yesterday (with Bill Bernstein's permission) but this material addresses the crux of the present thread:

Markets fluctuate, so I suggest another path. If, at any point a bull market pushes your portfolio over the LMP (liability matching portfolio) "magic number" of 20 to 25 times your annual cash-flow needs beyond Social Security and pensions, you've won the investing game. Why keep playing? Start bailing. After you've put enough TIPS, plain vanilla Treasuries, and CDs into your mental LMP, you're free to start adding again to your RP (risk portfolio). If stocks continue their rise, you can slowly transfer even more assets into a separate low-risk pool earmarked for emergencies, RP equity purchases at lower prices, nice-to-have luxuries and travel, and purchase of the corner lot owned by your impecunious neighbor who suddenly sorely needs some cash.

“Tactics without strategy is the noise before defeat.” - Sun Tzu |
"Everybody has a plan until they get punched in the mouth." - Mike Tyson

I'm about 45/55 and have enough in non equities to support our retirement. I have not considered taking more money off the table but I have thought of increasing my international exposure. It is currently about 10% of my stocks. 20% of stocks in international would still be conservative. International has not fared as well as US over the past year. I would be taking dollars off the table and replacing it with Yen, Pounds, Euros, Yuan, etc.

Peter Foley wrote:I'm about 45/55 and have enough in non equities to support our retirement. I have not considered taking more money off the table but I have thought of increasing my international exposure. It is currently about 10% of my stocks. 20% of stocks in international would still be conservative. International has not fared as well as US over the past year. I would be taking dollars off the table and replacing it with Yen, Pounds, Euros, Yuan, etc.

I've been adding to international lately. I've raised it from 15% to about 26% of equity currently.

EDITED TO ADD: Per my IPS which was amended some time ago to increase my allocation to international. (Just in case any of the hallway monitors are about. )

Last edited by Blues on Fri May 03, 2013 6:26 pm, edited 1 time in total.

“Tactics without strategy is the noise before defeat.” - Sun Tzu |
"Everybody has a plan until they get punched in the mouth." - Mike Tyson

Scooter57 wrote:Walking away from the table when you've made as much as you need to make isn't market timing. It's prudent behavior.

Yes, but it is good to have a plan that lays out when you walk and when you hold. Otherwise, emotion enters the equation and you end up just reacting current conditions.

Are we playing Blackjack here?
Or are we laying out a lifelong investment philosophy?
I don't consider my portion of money in diversified stock mutual funds to be Gambling.
Folks that do consider it gambling aren't really bogleheads.
I'm almost getting annoyed with some of the ideas being put forward in this thread, EXCEPT that, folks are welcome to do as they please with their own money...

The Wizard wrote:I'm almost getting annoyed with some of the ideas being put forward in this thread, EXCEPT that, folks are welcome to do as they please with their own money...

Seriously? I spent a lifetime enforcing laws and statutes but certainly don't see a need for someone on a discussion board to take umbrage with other members openly discussing in a frank and honest fashion how they have handled the transition from one stage of life to another.

And, I don't think the object of this "game" is to see who dies with the most money. Folks are entitled to withdraw, safeguard or use the funds which they have so diligently spent a lifetime amassing.

To me it would seem a (pointless) "game" if one couldn't actually use the money for what it's for...namely to enhance the quality of life of its bearers and provide for the security of themselves and their loved ones.

Anyone so locked into an IPS that they are unwilling to make changes (as made necessary by the exigencies of life itself ) really needs to take a moment to consider what the heck they are investing for.

By the way, if I'm arguing with you in error because you are annoyed with the "other" side, my apologies in advance.

“Tactics without strategy is the noise before defeat.” - Sun Tzu |
"Everybody has a plan until they get punched in the mouth." - Mike Tyson

avalpert....Once you have won the game you can stop playing.If the other team has no timeouts at the end of a football game you can hike the ball and take a knee to secure the win or you can run a needless play and risk a turnover that can cost you the game.That is my point and idiotic was a poor choice of words.

Investing in the stock market is most definitely a form of gambling. The odds are quite good, which is why it's worth pursuing, but risk really is risk, and there is no guarantee that if you follow any investing strategy you'll come out with a predictable return.

The boglehead strategies are designed to give you the average market return, which is better than you will generally get picking stocks.But you can do everything right and if the whole market fares poorly for a long time, you'll still do poorly.

You must never lose sight of the fact that you are gambling when you invest in stocks and that they write "Past performance is no guarantee of future results" because it's true. Don't be lulled into thinking stocks will always go up and that market drops will always recover within a few years. They haven't in the past in the U.S. and in other countries.

At different stages of life people have a different capacity for tolerating risk--i.e. the possibility that very suddenly much of the money you have invested isn't going to be there anymore. People learned this in the 1930s forgot it by the 1980 and were on the way to learning it again in 2009 when the bailouts and aggressive Fed policy either saved us from ruin or postponed the day of reckoning--exactly which won't be clear for another decade.

Scooter57 wrote:Walking away from the table when you've made as much as you need to make isn't market timing. It's prudent behavior.

Yes, but it is good to have a plan that lays out when you walk and when you hold. Otherwise, emotion enters the equation and you end up just reacting current conditions.

Are we playing Blackjack here?
Or are we laying out a lifelong investment philosophy?
I don't consider my portion of money in diversified stock mutual funds to be Gambling.
Folks that do consider it gambling aren't really bogleheads.
I'm almost getting annoyed with some of the ideas being put forward in this thread, EXCEPT that, folks are welcome to do as they please with their own money...

It isn't gambling if someone has a plan, say, to maintain a TIPS ladder to cover all expenses for the next 20 years and not let it fall below that level. If equity tanks, one might then not rebalance to equity because of the rule to maintain a TIPS funded cash flow.

Personally, I don't allow equity to ever reach a point where I can't survive a permanent 75% haircut in that part of my holdings. So I don't have a hard and fast allocation per se. There is a point where I would walk away.

If you are getting annoyed, you can read elsewhere. I don't recall this forum being a binding contract.

The market could triple from here. Remember it was flat for about a dozen years. We have no idea. I "hate" these algorithms of what to do and when. I just buy and hold and don't care what happens. Right now though, it is eerie how every week it goes up.

Calm Man wrote:The market could triple from here. Remember it was flat for about a dozen years. We have no idea. I "hate" these algorithms of what to do and when. I just buy and hold and don't care what happens. Right now though, it is eerie how every week it goes up.

I'm sure that you don't mean that literally as it would be pointless to invest if one doesn't care what happens with their money.

Larry's mantra about "ability, willingness and need to take (additional) risk" along with the aforementioned discussion of the "marginal utility of wealth" goes a long way toward helping average investors like myself keep it real.

“Tactics without strategy is the noise before defeat.” - Sun Tzu |
"Everybody has a plan until they get punched in the mouth." - Mike Tyson

Calm Man wrote:The market could triple from here. Remember it was flat for about a dozen years. We have no idea. I "hate" these algorithms of what to do and when. I just buy and hold and don't care what happens. Right now though, it is eerie how every week it goes up.

Even trees don't grow to the sky forever. This momentum has the flavor of the 2006 housing market - when folks thought prices could only go one way. It's not different this time - and if you don't believe me, just read The Four Pillars of Investing - to see about market history and frenzies. This has the makings of a "frenzy".

A funny thing about these earnings reports, a number of reporting companies are having a real problem growing the "top line" - my observations of course, they must have forgot 70% of the economy is the consumer. Noise? - perhaps, alas, I am staying the course with my plan. Right now, the blood in the streets is and has continued to be in International.

umfundi wrote:I guess I disagree with the "take the money off the table" crowd, and to some extent with Dr. Bernstein.

It depends heavily on your overall circumstances, including your age.

I think it is silly to drastically change your AA when you reach "your number", particularly when you are some years away from retirement.

Keith

I disagree - some years back in the go-go era of the Internet rage, a fellow I was acquainted with held quite a bit of Lucent (i know undiversified risk, yada yada) - it was worth $2 million dollars, enough for him to cash out and retire in style. Instead of doing that, he got greedy and thought it would double again - as we all found out later, Lucent went the way of the Enron and Worldcom, bust...... This guy's retirement went up in smoke by not drastically changing his AA when he reached his number and he was ten years away from retirement.

umfundi wrote:I guess I disagree with the "take the money off the table" crowd, and to some extent with Dr. Bernstein.

It depends heavily on your overall circumstances, including your age.

I think it is silly to drastically change your AA when you reach "your number", particularly when you are some years away from retirement.

Keith

I disagree - some years back in the go-go era of the Internet rage, a fellow I was acquainted with held quite a bit of Lucent (i know undiversified risk, yada yada) - it was worth $2 million dollars, enough for him to cash out and retire in style. Instead of doing that, he got greedy and thought it would double again - as we all found out later, Lucent went the way of the Enron and Worldcom, bust...... This guy's retirement went up in smoke by not drastically changing his AA when he reached his number and he was ten years away from retirement.

I was presuming a Boglehead type investing in indexes with a reasonable AA and well diversified.

I bought the original Silicon Graphics (SGI) stock for $7 in the 1980s, saw it go to $75 and sold for $14. Doubled my money! And, convinced me that stock picking was not for me.

This is not a bubble. The Dow and S&P 500 are at record highs but not much higher than what was reached in 2000. The NASDAQ is still well below its all time high of about 5,000.

Up markets and record highs are normal behavior for stock markets. We have been in a secular bear market for so long that we think this is strange. Only time will tell if we have left the secular bear behind.

Strong markets like this are good rebalancing opportunities. Problem is that bonds are very expensive right now. This is why I have let things ride. At some point I will sell a small portion of my stocks and reallocate into bonds. I am not there yet. My enthusiasm for bonds right now is pretty underwhelming.

Scooter57 wrote:Investing in the stock market is most definitely a form of gambling. The odds are quite good, which is why it's worth pursuing, but risk really is risk, and there is no guarantee that if you follow any investing strategy you'll come out with a predictable return.

By that definition crossing the street at a crosswalk with the light is a form of gambling - you're welcome to use the word that way but I don't think it fits with common usage.

The stock market is inherently unpredictable. As the saying goes, there are two types of investors: those who don't know where the stock market is going and those who don't know they don't know where it is going. Many large hedge fund managers (bear in mind these guys get paid in millions, tens of millions, hundreds of millions, or in come cases billions) have been shorting this bull market all year and have lost many millions of their clients dollars because they believed that the market couldn't keep going up. 13 years of a secular bear market leaves deep psychological scars and many private and professional investors have kept conservative, on the sidelines with the lion's share of their investment assets in cash or bonds even as the total stock market soared 150% in a bit over 4 years. The great rotation out of fixed income has not happened, nor has the rush into equities from money on the sidelines. We tend to prepare for what has happened in the recent and intermediate past rather than for what is going to happen in the future. Ironically, this persistently high level of skepticism helps to keep the market going up because it prevents the euphoric overvaluation that is the death knell to bull markets. Currently in my opinion the market fundamentals as measured by PE, PB, etc., are not overvalued relative to the other possible investment options such as bonds and cash. That of course does not guarantee that the correction that so many market mavens have called for won't finally happen. I believe it will at some point, perhaps soon. But corrections, big or small, are part of the equity investing game and like the ones of 2000 and 2008, they don't last forever.